TradeStation: Broker Review for Options Trading

By Jordan Wathen Markets Fool.com

While most brokers offer similar levels of service for basic stock and fund trades, options traders should be more discerning. Stock option commissions and functionality vary wildly from brokerage to brokerage, so it's important to understand the details before opening a new account. Today, we'll review a popular online discount brokerage, TradeStation, and examine what it has to offer investors who use options in their portfolio.

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TradeStation's commission prices

While commission prices aren't everything, they are an important consideration when it comes to choosing a broker. TradeStation allows its customers to select between two different commission schedules. For options trades, customers can choose to simply pay $1.00 per contract or pay $5.00 per trade plus $0.50 per contract.

Stock Options

Stocks and ETFs

$5.00 per trade plus $0.50 per contract
or
$1.00 per contract

$5.00 flat
or
$0.01 per share

Data source: company website.

The choice ultimately comes down to the size of the customer's average trade. Those who trade in larger sizes will find TradeStation's base-plus commission schedule ($5.00 per trade plus $0.50 per contract) to be a better choice than its $1.00 per-contract pricing plan, as the base-plus plan is more cost-effective for trades of more than 10 contracts.

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Keep in mind that there are some caveats with the prices displayed in the table, which solely reflect the broker's published commission prices. Many brokers havespecial offers for new accounts, which include cash bonuses and commission-free trades for opening an account. These bonuses and sign-up incentives can act as an effective discount, reducing the cost of the average trade.

Multi-leg options and exercise and assignment fees

It goes without saying that not all investors use options in the same way. Some investors simply buy and sell calls or puts, while others use multi-leg options strategies that require simultaneous transactions in a number of different put or call contracts.

TradeStation allows for its clients to use more complex options strategies, given that investors can place online trades with up to four legs and pay just one base fee of $5.00 to do so.

Type of Transaction

Fees and Commissions

Multi-leg options

Up to 4 legs (one $5.00 base commission)

Options exercise

$14.95 (Early exercise: $1.50 per contract)

Options assignment

$14.95 (Early assignment: $1.50 per contract, $5.95 minimum)

Buy to close fee for low-cost options

Standard commission schedule

Data source: company website.

Those who use multi-leg options strategies will like that TradeStation charges only one base rate for placing a multi-leg trade. A trader could simultaneously buy two different call options and two different put options and pay just $9.00 (the $5.00 base rate plus $1.00 per contract) to make the trade. Other brokers charge a base rate on all legs in a multi-leg trade, which can quickly add up.

That said, the brokerage charges higher commissions when options are exercised or assigned, especially when exercise or assignment happens before the options' expiration. Those who write puts to buy stock, for example, should take note of its higher prices for options that are exercised or assigned.

TradeStation's commissions favor multi-leg options trading, but exercise and assignment fees are higher than its standard commissions. Image source: Getty Images.

Options research tools

While discount brokers have a reputation for cutting corners to offer lower commission prices, many discount brokers now provide a wealth of free research and trading tools to help their clients make informed trading decisions. Luckily, many of these services are offered for free to customers who have an open account.

TradeStation has a tool specifically for options trading called OptionStation Search. The tool allows its clients to scan the market for options trades that fit their particular view or strategy. Clients can rank positions by theoretical profit and loss, maximum return, and other parameters.

In addition, OptionStation Search allows options traders to select from a library of pre-built strategies to help find a trade that fits the investors' goal for a particular trade. This can be useful for quickly setting up a complex options strategy, or evaluating the potential risk-to-reward profile of a given trade.

Minimum deposit requirements for options trading

TradeStation requires a minimum deposit of $500 for a cash account and $2,000 for a margin account. After satisfying the minimum deposit requirements, TradeStation clients can complete basic stock and options trades. As with all brokers, TradeStation may require a larger balance to complete options trades that subject the trader to an elevated risk of loss (shorting puts or calls, for example) may require a larger balance.

Review: TradeStation for options trading

Ultimately, there is no one-size-fits-all best broker for every type of investor. Investors who use multi-leg options strategies may like that it charges only one base fee per trade, and its low minimum account requirements may be advantageous to those who are just getting started. That said, higher commissions when options are exercised or assigned may make it a costlier choice for some options strategies.To be clear, The Motley Fool does not endorse any particular brokerage, but we can help you find one that is a good fit for you. Check out theFool.com Broker Centerto compare several brokers all on one page and to see if you qualify for extra perks just for opening an account.

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